The WTO July Framework Package  and Beyond

IFAP Briefing Note

By David King, Secretary General of IFAP

 

INTRODUCTION

The most significant new development since Cancun is the adoption of the “July Framework package” by the WTO General Council on 1 August 2004. This framework requires reduction commitments to be made on a product-specific basis, which is a new departure compared with the previous Round.

 

The significance of the July Framework is that it provides guidelines for negotiators on how to draw up the ‘modalities’ for commitments in this trade Round. The deadline they are working to is the 6th WTO Ministerial Conference that will take place in Hong Kong, 13-18 December 2005. However, if that deadline is missed, the WTO General Council has the authority to sign a deal in early 2006, just as it did for the July Framework Package after the Cancun Ministerial Conference.

 

The basic mandate is the Doha Ministerial Declaration of November 2001, which set the level of ambition for this round of multilateral trade negotiations as follows:

 

1. Substantial improvements in market access
2. Reductions of, with a view to phasing out, all forms of export subsidies
3. Substantial reductions in trade-distorting domestic support.

 

Special and differential treatment for developing countries shall be an integral part of all elements of the negotiations, and non-trade concerns will be taken into account.

 

THE SUBSTANCE

The guidance for drawing up Modalities for the reduction commitments that is given in the July Framework package for each of the three pillars is as follows:

 

Domestic support

For domestic support, the guidance given in the framework is quite clear.

First there is to be an overall reduction commitment on total domestic support. Thus the sum of support in the amber box, blue box, and de minimis will be added together and a figure negotiated for an overall reduction.

Second, the framework also requires separate reduction commitments to be made in the three areas of amber box (AMS), blue box and de minimis.

So there are in fact four levels of commitment to be negotiated on domestic support.

For Amber box support there are two key points:

 

• Members having higher levels of trade-distorting domestic support will make greater overall reductions in order to achieve a harmonizing result.

 

• In order to prevent transfers of support among different products, there will be an AMS cap on a product-by-product basis. Negotiators will have to agree on a base year for the cap. WTO has data on the AMS of each country on a product by product basis from the AMS notification tables that each country provides.

 

For Blue box support the Framework is clear. As of day one of the implementation period of the Doha round agreements, Blue box support would be fixed at a maximum of 5 per cent of the total value of agricultural production of a country. The critical issue is the choice of the base period for calculating the 5 per cent.

 

This provision is a rules-related commitment, not a schedule commitment, so it is open to everybody whether or not they had blue box support in the past. There are however two criteria that have to be complied with to have Blue box support: i) they must be direct payments under production-limiting programs, or be direct counter-cyclical payments, and ii) they must be less trade-distorting than amber box support. Concerning the latter point, trade negotiators have been mandated to draw up other Blue box criteria to make sure that Blue box support is in fact less trade distorting than Amber box support. The G-20 group, led by Brazil, has indicated that it will be making proposals in this area.

 

The requirement to drop all Blue box support down to a maximum of 5 per cent of total agricultural production in one step will probably not adversely affect those countries that have already made policy reforms and converted trade-distorting support into Green box support (e.g. the EU single farm payment). However, countries like Norway that have a lot of their support in the Blue box will be strongly affected. There is therefore a provision for flexibility so that a country is not called upon to make a wholly disproportionate cut.

 

For de minimis support, the Framework just says that reductions will be negotiated. At present the de minimis clause exempts domestic support from reduction if it does not exceed 5 per cent of the total value of production of a basic agricultural product; 10 per cent for developing countries. Once support exceeds 5 per cent of the total value of production, it all goes into the Amber box and is subject to reduction commitments. The framework says that “developing countries that allocate almost all de minimis support for subsistence and resource-poor farmers will be exempt” from cuts.

 

In making the calculations of total reductions in domestic support, it is likely that the sum of the reductions of the three types of support may be different from the overall reduction. In this case, the Framework requires the most constraining cut to be the one that is made.

 

Export competition

The Framework is clear that negotiators have to establish modalities to eliminate all forms of export subsidies in parallel, and discipline other export measures with an equivalent effect, by a certain end date to be agreed. Under exceptional circumstances developing country exporters may be allowed to use ad hoc temporary export financing arrangements.

 

However, there are substantial technical problems to be overcome in ensuring ‘full parallelism’ and ‘equivalence in substance’ between export subsidies, export credits, export guarantees, export insurance, food aid shipments that displace commercial sales, and any trade-distorting practises done through state-trading enterprises.

 

It is relatively straightforward up to here, since not very many of the 148 members of WTO are concerned with making significant reduction commitments in the areas of domestic support or export competition.  Now we come to market access which is much more complicated.

 

Market access

Compared with the Doha Declaration, the July Framework is more precise in terms of defining what is mean by “substantial improvements in access”, by placing it on a product-by-product basis. Increased market access is to be achieved by a combination of tariff quota expansion (or creating new tariff quotas) and tariff reductions applying to each product.

However, the Framework still leaves much undecided in this area, so it will be the tough one in the negotiations. For example:

 

• Negotiators will have to work out how to combine the requirements in the Framework for “deeper cuts in higher tariffs” with “flexibilities for sensitive products”, given the fact that it is the sensitive products that have that higher tariffs.
• Negotiators will also have to work out how to ensure “the fullest liberalisation of trade in tropical agricultural products” while at the same time recognising “the importance of long-standing preferences” for developing countries, which involve tropical products.

 

A tariff reduction formula will need to be agreed, including the number of bands (to ensure deeper cuts for higher tariffs), and the method of reduction within each band – whether it be the harmonisation approach (Swiss formula), or the Uruguay Round approach where there was an average tariff cut along with a minimum cut.

 

Negotiations will also address tariff escalation and tariff simplification.

 

As in all three pillars of the negotiations, there will be special and differential treatment for developing countries. This means that developing countries will be required to make lesser cuts in support and protection, and benefit from longer implementation periods. Under the market access negotiations, developing countries will be able to identify a certain number of Sensitive Products for more flexible (lower) tariff cuts, as can all WTO members. In addition developing countries will be able to:

• identify a certain number of Special Products that are essential for their food security, livelihood security and rural development needs, which will be subject to only token cuts,
• have access to a new Special Safeguard Mechanism established only for the use of developing countries.

 

Least-developed countries will not have to make any market access commitments.

 

THE PROCESS

The July Framework package changed the context, or approach, to the negotiations. As a result, some of the previous technical working done by negotiators on formulas is no longer relevant.

 

Agricultural negotiators have therefore started a process in Geneva of updating their work on technical issues in order to provide the necessary options for political choices before the next WTO Ministerial Conference that takes place in December 2005.

 

Negotiations are being conducted as “open-ended informal sessions”, with only the final afternoon reserved for formal statements. It is difficult to move from formal positions, hence the informal approach.

 

The negotiating/consultation structure is in country coalitions, which is a transparent process that seems to be working well. The main players are the G-20 Group of developing countries led by Brazil, the G-10 Group of mainly importing countries led by Japan, the Cairns Group of exporting countries led by Australia, the G-33 Group of developing countries supporting provisions for Special Products and a Special Safeguard Mechanism, the G-99 made up of the Africa Group, the Least-Developed Countries Group and the ACP Group, and the USA and the EU.

 

Every month there will be an “agriculture week” of technical negotiations. The first such agriculture week was held in October 2004, the November meeting has just taken place and there will be another agriculture week 13-17 December 2004. This process will continue into the first part of 2005. There will also be inter-sessional consultations, as needed.

 

At the November meeting, negotiators looked at: methodology for converting fixed tariffs ($ per unit) to ad valorem equivalents (percentage of the value of the product), Green box criteria, disciplines on State Trading Enterprises, export credits, and food aid. The discussion on export credits has changed with the introduction in the July package of the limit of 180 days for the repayment period. Members also want rules to make sure that export credits given for less than 180 days do not contain hidden subsidies.

 

Technical discussions will continue until the context becomes propitious for political discussions. At the present time, this is not the case.

Even though elections returned the same government in the USA, time will be needed to refocus for the new mandate, including perhaps making new demands on trade negotiators. Also the US administration will need to renew its Trade Promotion Authority with Congress in June 2005. The new Commission in the European Union will need time to settle in as the new Trade and Agricultural Commissioners take over this month.

 

CONCLUSION

Farmers will have to be vigilant in following the WTO negotiations throughout 2005.

The critical factors are i) the base period chosen for the reduction commitments, ii) the length of the implementation period for making the reductions, which could conceivably be different each product. This will likely be decided at the last minute in order to provide overall balance to the final Doha package.

 

IFAP supports a WTO multilateral rules-based system for international trade, and is pushing for the following critical objectives concerning the commitments in this Round:

 

1. An improvement in world agricultural trade that brings real benefits to all farmers.
2. Significant progress and balanced commitments over all three pillars.
3. Sufficient flexibility in the modalities framework allowing countries to use the most appropriate instruments according to their specific national circumstances to meet agreed, measurable and equitable outcomes.
4. Space for farmers to receive domestic support, so long as that support has no, or at most minimal, distorting effects on production and trade.
5. Improvements in market access for all farmers, and in particular those in developing countries and Least-Developed Countries.
6. Due prominence and recognition of the broad role that agriculture plays in many countries, ensuring not only food production but also many other functions, including the sustainability of rural areas and environmental protection.

 

An agreement on agriculture is critical to the success of the Doha Round as a whole, but progress also needs to be made in the other areas of the negotiations, including: Non-Agricultural Market Access (NAMA), Services, and Rules for Trade Facilitation. In WTO “nothing is agreed until everything is agreed”.